NORWALK-LA MIRADA UNIFIED SCHOOL DISTRICT ANNUAL FINANCIAL REPORT JUNE 30, 2017

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1 NORWALK-LA MIRADA UNIFIED SCHOOL DISTRICT ANNUAL FINANCIAL REPORT

2 TABLE OF CONTENTS FINANCIAL SECTION Independent Auditor's Report 2 Management's Discussion and Analysis 5 Basic Financial Statements Government-Wide Financial Statements Statement of Net Position 18 Statement of Activities 19 Fund Financial Statements Governmental Funds - Balance Sheet 20 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position 21 Governmental Funds - Statement of Revenues, Expenditures, and Changes in Fund Balances 23 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities 24 Proprietary Funds - Statement of Net Position 26 Proprietary Funds - Statement of Revenues, Expenses, and Changes in Fund Net Position 27 Proprietary Funds - Statement of Cash Flows 28 Fiduciary Funds - Statement of Net Position 29 Fiduciary Funds - Statement of Changes in Net Position 30 Notes to Financial Statements 31 REQUIRED SUPPLEMENTARY INFORMATION General Fund - Budgetary Comparison Schedule 78 Schedule of Other Postemployment Benefits (OPEB) Funding Progress 79 Schedule of the District's Proportionate Share of the Net Pension Liability 80 Schedule of District Contributions 81 Note to Required Supplementary Information 82 SUPPLEMENTARY INFORMATION Schedule of Expenditures of Federal Awards 84 Local Education Agency Organization Structure 86 Schedule of Average Daily Attendance 87 Schedule of Instructional Time 88 Reconciliation of Annual Financial and Budget Report With Audited Financial Statements 89 Schedule of Financial Trends and Analysis 90 Combining Statements - Non-Major Governmental Funds Combining Balance Sheet 91 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 92 Note to Supplementary Information 93 INDEPENDENT AUDITOR'S REPORTS Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards 96 Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance 98 Report on State Compliance 100

3 TABLE OF CONTENTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS Summary of Auditor's Results 104 Financial Statement Findings 105 Federal Awards Findings and Questioned Costs 106 State Awards Findings and Questioned Costs 107 Summary Schedule of Prior Audit Findings 109 Management Letter 111

4 FINANCIAL SECTION 1

5 INDEPENDENT AUDITOR'S REPORT Governing Board Norwalk-La Mirada Unified School District Norwalk, California Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Norwalk-La Mirada Unified School District (the District) as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the District's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting, issued by the California Education Audit Appeals Panel as regulations. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the District's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the District's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions Foothill Blvd., Suite 300, Rancho Cucamonga, CA P F W vtdcpa.com

6 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Norwalk-La Mirada Unified School District, as of June 30, 2017, and the respective changes in financial position and cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 5 through 17, budgetary comparison schedule on page 78, schedule of other postemployment benefits funding progress on page 79, schedule of the District's proportionate share of net pension liability on page 80, and the schedule of District contributions on page 81, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Norwalk-La Mirada Unified School District's basic financial statements. The accompanying supplementary information such as the combining and individual nonmajor fund financial statements and Schedule of Expenditures of Federal Awards, as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) and the other supplementary information as listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. The accompanying supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the accompanying supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. 3

7 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 11, 2017, on our consideration of the Norwalk-La Mirada Unified School District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of Norwalk-La Mirada Unified School District's internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Norwalk-La Mirada Unified School District's internal control over financial reporting and compliance. Rancho Cucamonga, California December 11,

8 This section of Norwalk-La Mirada Unified School District's (the District) annual financial report presents our discussion and analysis of the District's financial performance during the fiscal year that ended on June 30, 2017, with comparative information for the year ending June 30, Please read it in conjunction with the District's financial statements, which immediately follow this section. OVERVIEW OF THE FINANCIAL STATEMENTS The Financial Statements The financial statements presented herein include all of the activities of the District and its component units using the integrated approach as prescribed by Governmental Accounting Standards Board (GASB) Statement No. 34. The Government-Wide Financial Statements present the financial picture of the District from the economic resources measurement focus using the accrual basis of accounting. They present governmental activities and business-type activities separately. These statements include all assets of the District (including capital assets), as well as all liabilities (including long-term obligations). Additionally, certain eliminations have occurred as prescribed by the statement in regards to interfund activity, payables, and receivables. The Fund Financial Statements include statements for each of the three categories of activities: governmental, proprietary, and fiduciary. The Governmental Fundsare prepared using the current financial resources measurement focus and modified accrual basis of accounting. The Proprietary Funds are prepared using the economic resources measurement focus and the accrual basis of accounting. The Fiduciary Funds are prepared using the economic resources measurement focus and the accrual basis of accounting. The Primary unit of the government is the Norwalk-La Mirada Unified School District. 5 BOARD OF EDUCATION SEAN M. REAGAN CHRIS PFLANZER DARRYL R. ADAMS JUDE CAZARES President Vice President Member Member KAREN L. MORRISON JESSE URQUIDI ANA VALENCIA HASMIK J. DANIELIAN, Ed.D. Member Member Member Superintendent

9 MANAGEMENT'S DISCUSSION AND ANALYSIS REPORTING THE DISTRICT AS A WHOLE The Statement of Net Position and the Statement of Activities The Statement of Net Position and the Statement of Activities report information about the District as a whole and about its activities. These statements include all assets and liabilities of the District using the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year's revenues and expenses are taken into account regardless of when cash is received or paid. These two statements report the District's net position and changes in them. Net position is the difference between assets and deferred outflows of resources, and liabilities and deferred inflows of resources, which is one way to measure the District's financial health, or financial position. Over time, increases or decreases in the District's net position will serve as a useful indicator of whether the financial position of the District is improving or deteriorating. Other factors to consider are changes in the District's property tax base and the condition of the District's facilities. The relationship between revenues and expenses is the District's operating results. Since the governing board's responsibility is to provide services to our students and not to generate profit as commercial entities do, one must consider other factors when evaluating the overall health of the District. The quality of the education and the safety of our schools will likely be an important component in this evaluation. In the Statement of Net Position and the Statement of Activities, we separate the District activities as follows: Governmental Activities - Most of the District's services are reported in this category. This includes the education of kindergarten through grade twelve students, adult education students, the operation of child development activities, and the on-going effort to improve and maintain buildings and sites. Property taxes, State income taxes, user fees, interest income, Federal, State, and local grants, as well as general obligation bonds, finance these activities. Business - Type Activities - The District charges fees to help it cover the costs of certain services it provides. The District's child care program is included here. 6

10 MANAGEMENT'S DISCUSSION AND ANALYSIS REPORTING THE DISTRICT'S MOST SIGNIFICANT FUNDS Fund Financial Statements The fund financial statements provide detailed information about the most significant funds - not the District as a whole. Some funds are required to be established by State law and by bond covenants. However, management establishes many other funds to help it control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grants, and other money that it receives from the U.S. Department of Education. Governmental funds - Most of the District's basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the District's general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance the District's programs. The differences of results in the governmental fund financial statements to those in the government-wide financial statements are explained in a reconciliation following each governmental fund financial statement. Proprietary funds - When the District charges users for the services it provides, whether to outside customers or to other departments within the District, these services are generally reported in proprietary funds. Proprietary funds are reported in the same way that all activities are reported in the Statement of Net Position and the Statement of Revenues, Expenses, and Changes in Fund Net Position. In fact, the District's enterprise funds are the same as the business-type activities we report in the government-wide statements, but provide more detail and additional information, such as cash flows, for proprietary funds. We use internal service funds (the other component of proprietary funds) to report activities that provide supplies and services for the District's other programs and activities, such as the District's Self-Insurance Fund. The internal service funds are reported with governmental activities in the government-wide financial statements. THE DISTRICT AS A TRUSTEE Reporting the District's Fiduciary Responsibilities The District is the trustee, or fiduciary, for funds held on behalf of others, like our funds for associated student body activities and scholarships. The District's fiduciary activities are reported in the Statement of Fiduciary Net Position and the Statement of Revenues, Expenses, and Changes in Fund Net Position. We exclude these activities from the District's other financial statements because the District cannot use these assets to finance its operations. The District is responsible for ensuring that the assets reported in these funds are used for their intended purposes. 7

11 MANAGEMENT'S DISCUSSION AND ANALYSIS THE DISTRICT AS A WHOLE Net Position The District's net position was $(14,754,938) for the fiscal year ended June 30, Of this amount, $(211,393,080) was unrestricted. Restricted net position is reported separately to show legal constraints from debt covenants and enabling legislation that limit the governing board's ability to use that net position for day-to-day operations. Our analysis below, in summary form, focuses on the net position (Table 1) and change in net position (Table 2) of the District's activities. Table 1 Governmental Activities Business-Type Activities School District Activities ASSETS Current and other assets $ 142,778,622 $ 152,412,645 $ 426,863 $ 237,388 $ 143,205,485 $ 152,650,033 Capital assets 291,517, ,624, ,517, ,624,585 Total Assets 434,295, ,037, , , ,722, ,274,618 Deferred Outflows of Resources 44,680,609 36,680, , ,732 44,823,127 36,790,057 LIABILITIES Current liabilities 22,863,847 22,738,213 50,050 17,421 22,913,897 22,755,634 Long-term obligations 257,552, ,517, ,552, ,517,181 Aggregate net pension liability 205,042, ,093, , , ,492, ,443,748 Total Liabilities 485,458, ,348, , , ,958, ,716,563 Deferred Inflows of Resources 8,320,453 34,996,618 22, ,626 8,342,565 35,103,244 NET POSITION Net investment in capital assets 156,293, ,847, ,293, ,847,101 Restricted 40,344,558 38,347, ,344,558 38,347,601 Unrestricted (211,440,597) (196,822,506) 47,517 (127,328) (211,393,080) (196,949,834) Total Net Position $ (14,802,455) $ (7,627,804) $ 47,517 $ (127,328) $ (14,754,938) $ (7,755,132) The $(211,393,080) in unrestricted net position represents the accumulated results of all past years' operations. This unrestricted net position now includes the long-term liabilities from pension benefits as required under GASB 67/68, impacting the overall net position. Unrestricted net position - the part of net position that can be used to finance day-to-day operations without constraints established by debt covenants, enabling legislation, or other legal requirements decreased by $14,443,246 ($(211,393,080) compared to $(196,949,834)). 8

12 MANAGEMENT'S DISCUSSION AND ANALYSIS Changes in Net Position The results of this year's operations for the District as a whole are reported in the Statement of Activities on page 19. Table 2 takes the information from the Statement, rounds off the numbers, and rearranges them slightly so you can see our total revenues for the year. Table 2 Governmental Activities Business-Type Activities School District Activities Revenues Program revenues: Charges for services $ 1,569,310 $ 2,002,995 $ 957,134 $ 884,086 $ 2,526,444 $ 2,887,081 Operating grants and contributions 50,002,838 49,499, ,002,838 49,499,556 General revenues: Federal and State aid not restricted 147,466, ,405, ,466, ,405,173 Property taxes 47,221,594 43,135, ,221,594 43,135,137 Other general revenues 12,795,932 14,980,440 4,502 2,590 12,800,434 14,983,030 Total Revenues 259,055, ,023, , , ,017, ,909,977 Expenses Instruction-related 176,034, ,626, ,034, ,626,087 Pupil services 30,125,654 27,494, ,125,654 27,494,119 Administration 12,498,228 11,565, ,498,228 11,565,996 Maintenance and operations 24,698,805 22,368, ,698,805 22,368,475 Other 22,953,890 22,266, , ,562 23,660,681 22,866,697 Total Expenses 266,310, ,320, , , ,017, ,921,374 Excess (Deficiency) Transfers 80, ,000 (80,000) (200,000) - - Change in Net Position $ (7,174,651) $ 16,902,489 $ 174,845 $ 86,114 $ (6,999,806) $ 16,988,603 9

13 MANAGEMENT'S DISCUSSION AND ANALYSIS Governmental Activities As reported in the Statement of Activities on page 19, the cost of all of our governmental activities this year was $266,310,649, an increase of $22,989,837 or 9.4 percent over the prior year. However, the amount that our taxpayers ultimately financed for these activities through local taxes is only a small portion equating to 17.7 percent of overall expenditures and the vast majority of expenditures were paid by those who benefited from the programs $(1,569,310) or by other governments and organizations who subsidized certain programs with grants and contributions $(50,002,838). We paid for the remaining "public benefit" portion of our governmental activities with $160,262,256 from Federal and State unrestricted funds and from other revenue sources, such as interest and general entitlements. In Table 3, we have presented the cost and net cost of each of the District's largest functions: regular program instruction, including special instruction programs and other instruction-related programs, pupil services, including student transportation and school food services, administration, maintenance and operations, and all other remaining functional costs. As discussed above, net cost shows the financial burden that was placed on the District's taxpayers by each of these functions. Providing this information allows our citizens to consider the cost of each function in comparison to the benefits they believe are provided by that function. Table 3 Total Cost of Services Net Cost of Services Instruction-related $ 176,034,072 $ 159,626,087 $ 139,890,668 $ 124,388,152 Pupil services 30,125,654 27,494,119 17,441,300 16,027,525 Administration 12,498,228 11,565,996 11,196,938 9,859,556 Maintenance and operations 24,698,805 22,368,475 23,655,089 19,675,905 Other 22,953,890 22,266,135 22,554,506 21,867,123 Total $ 266,310,649 $ 243,320,812 $ 214,738,501 $ 191,818,261 10

14 MANAGEMENT'S DISCUSSION AND ANALYSIS THE DISTRICT'S FUNDS As the District completed this year, our governmental funds reported a combined fund balance of $94,496,808, which is a decrease of $10,238,086 from last year. An itemized chart is provided below labeled as Table 4. Table 4 Balances and Activity July 1, 2016 Revenues Expenditures June 30, 2017 General Fund $ 47,997,959 $ 214,987,038 $ 216,421,237 $ 46,563,760 Special Reserve Fund for Capital Outlay Projects 10,783,025 2,658,145 2,132,497 11,308,673 Bond Interest and Redemption Fund 16,369,910 16,165,288 15,851,541 16,683,657 Adult Education Fund 1,174,265 4,549,553 3,942,601 1,781,217 Child Development Fund 148,466 11,425,088 11,414, ,501 Cafeteria Fund 6,942,050 11,887,813 11,997,698 6,832,165 Deferred Maintenance Fund 159, , , ,662 Building Fund 20,493, ,888 10,942,506 9,746,919 Capital Facilities Fund 665, , ,521 1,091,254 Total $ 104,734,894 $ 262,824,447 $ 273,062,533 $ 94,496,808 The primary reasons for these decreases are: The Building Fund decreased $10.75 million from $20.5 million to $9.7 million, due to the use of general obligation bond proceeds from the Measure S & G initiatives for further planning of Phase 1A projects and the purchase of additional student devices and infrastructure upgrades for the Technology 2020 initiative. The General Fund is inclusive of the Special Reserve Fund for Postemployment Benefits (Fund 20) in accordance with GASB 54 Fund Balance Regulations, and decreased from $48.0 million to $46.6 million or $(1.43) million for both unrestricted and restricted sources. o The unrestricted General Fund decreased $1.7 million, as a result of negotiations between both employee associations for on-going salary (3 percent) and health benefit raises, higher pension contributions, and increases in expenditures for Local Control Accountability Plan services. o The restricted General Fund increased slightly by $0.28 million for additional grants received from the state, which provide funds to support specific legislation; such as, the College Readiness Block Grant ($0.63 million), Special Education Mental Health ($0.19 million), and E-rate ($0.14 million). This increase in grant funds were offset for expenditures to implement the Clean Energy Jobs Grant ($(1.6 million)) and the Educator Effectiveness Grant ($(4.8 million)). 11

15 MANAGEMENT'S DISCUSSION AND ANALYSIS The Adult Education Fund received additional one-time consortium funds to work with surrounding adult program providers totaling $0.37 million, and also had lower expenditures of $0.24 due to staff vacancies; resulting in a fund balance increase $0.61 million. The Special Reserve Fund for Capital Outlay Projects increased from $10.78 million to $11.31 million due to higher than anticipated Community Redevelopment Fund proceeds of $0.25 million and lease revenues. The Capital Facilities Fund ending balance increased $0.43 million from $0.67 million to $1.09 million, as a result of higher revenues from developer fees The Bond Interest and Redemption Fund is used for the repayment of bonds issued under Measure S and Measure G, and was increased by $0.31 million. General Fund Budgetary Highlights Over the course of the year, the District revises its budget as it attempts to deal with unexpected changes in revenues and expenditures. The final amendment to the budget was adopted on May 8, (A schedule showing the District's original and final budget amounts compared with amounts actually paid and received is provided in our annual report on Page 78, and a summary of the major budgetary changes are provided below.) Budgetary revenue changes were $3.14 million higher than original anticipated, inclusive of transfers in; and expenditures were higher by $5.99 million, inclusive of transfers out, from the Adopted Budget. In total, final budgetary revisions for the fiscal year projected a decrease in the estimated fund balance of $1.21 million; and final actuals were $1.43 million. Noteworthy budget revisions to revenues are outlined below: o Local Control Funding Formula, also known as LCFF, was left relatively unchanged from the original budget to final projections with a total budgetary change of 0.11 percent or $0.19 million. o Budgeted Federal revenues increased 4.69 percent or $0.55 million. Significant changes included, Title I, II, and III program carryovers of $0.12 million; $0.18 million for a Special Education Preschool Grant, and $0.22 million for E-rate reimbursement. o State revenues were revised from $21.13 million to $23.06 million, an increase of $1.92 million, primarily due to one-time funds provided by the state as follows: College Readiness Block grant funds for $0.62 million California Clean Energy Jobs grant funding of $1.12 million to further implement the district's approved five-year plan to improve energy efficiency district-wide. o Local revenue revisions were $0.62 million, increasing the original budget figures from $1.58 million to $2.19 million at final for the following: Interest income from the County Treasurer of $0.14 million Donations made to various K-8 schools increased by $0.27 million New grant funding from the Cotsen Foundation of $0.30 million for teacher training 12

16 MANAGEMENT'S DISCUSSION AND ANALYSIS Noteworthy budget revisions to expenditures are outlined below: o Certificated and Classified salaries and benefits were $4.97 million higher than the Adopted Budget primarily due to increases to cover a negotiated cost-of-living increase of 3.0 percent, effective July 1, 2016, a one-time bonus of 1.5 percent and on-going health benefits contributions. o Books and supply budgets were $0.71 million higher in total. Unrestricted budgets were increased slightly by $0.07 million primarily for site instructional materials purchased with Lottery funds; while restricted budgets increased $0.54 million for the use of one-time carryover from various state, federal, and local programs; in addition to new grants received. o Services and operating expenditures increased marginally from $17.97 million to $18.04 million, an increase of 0.41 percent and reflects an increase in projected changes for additional services, contracts, tuition, and software licenses. o Capital outlay budgeted expenditures increased for funds received from the Emergency Repair program of $0.36 million, to repair the Norwalk High weight room. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets At June 30, 2017, the District had $291,517,355 in a broad range of capital assets (net of depreciation), including land, buildings, and furniture and equipment. This amount represents a net increase (including additions, deductions, and depreciation) of $2,892,770, or 1.0 percent, from last year (Table 5). Table 5 Governmental Activities Land and construction in progress $ 22,799,033 $ 18,068,501 Buildings and improvements 262,182, ,127,554 Furniture and equipment 6,536,159 6,428,530 Total $ 291,517,355 $ 288,624,585 Capital assets represent one of the largest investments for the District. Modernization and construction projects continue to progress and a more detailed explanation is outlined in Note 5. Significant deductions to capital assets included cohort 1 student and teacher devices and various school kitchen upgrades being completed. Additions included the improvements for districtwide VOIP, roofing, heating and ventilation upgrades and cohort 2 student and teacher devices. As a result, total capital assets increased from $399.7 million to $411.1 million, excluding accumulated depreciation. 13

17 MANAGEMENT'S DISCUSSION AND ANALYSIS Long-Term Obligations At the end of this year, the District had $257,552,143 in long-term obligations outstanding versus $260,517,181 last year, a decrease of 1.1 percent. Those obligations consisted of: Table 6 Governmental Activities General obligation bonds - net (financed with property taxes) $ 205,078,995 $ 211,313,729 Certificates of participation 2,770,165 2,770,165 Capital lease 170, ,065 Accumulated vacation - net 2,669,413 2,474,774 Claims liability 17,343,000 17,036,000 Postemployment benefits 29,252,513 26,396,007 SELF workers' compensation assessment 267, ,441 Total $ 257,552,143 $ 260,517,181 The District's general obligation bond rating is Aa3 assigned by Moody's Investors Service. The State limits the amount of general obligation debt that districts can issue to five percent of the assessed value of all taxable property within the district's boundaries. The District's outstanding general obligation debt is significantly below the voter- approved threshold statutorily imposed limits. Other long-term obligations are inclusive of compensated absences payable, workers' compensation claims liability and assessment, and postemployment health benefits. We present more detailed information regarding our long-term obligations in Note 9 of the financial statements. Net Pension Liability (NPL) At year-end, the District had a pension liability of $205,042,598 in the governmental activities and $449,702 in the business-type activities, as a result of the adoption of GASB Statement No. 68, Accounting and Financial Reporting for Pensions. 14

18 MANAGEMENT'S DISCUSSION AND ANALYSIS ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES In considering the District Budget for the year, the governing board and management used the following criteria: The District s projected budgeted income for the total General Fund is $ million. Unrestricted totals are $ million or 73.3 percent of all General Fund revenues, and restricted revenues are budgeted at $55.33 million or 26.7 percent of total revenues. The key assumptions in our revenue forecast are: 1. LCFF revenue sources are budgeted at $9,830, an increase of $267 per ADA from estimated funding levels. Revenue Limit/LCFF funding includes 1.56 percent cost-of-living adjustment, which is used to increase the base grants annually. It is important to note that the COLA affects only the calculation of the LCFF Target, and does not describe the net increase in funding for each district. Projected Second Period Apportionment (P2 ADA) is calculated at 17,589 excluding non-public school and County Operated Programs. Enrollment projections indicate a decline in student population, in addition to changes to the "unduplicated pupil counts" that directly effects LCFF funding. Under the funding provision for LCFF, the District is eligible to claim the higher totals between current and prior year ADA; consequently, budget projections for are based using generated ADA. a. LCFF income is projected at $ million (inclusive of EPA funding and property taxes), representing 83.6 percent of all revenue sources. This represents an increase over prior year estimated actuals. The increase is a result of Governor's Proposal to increase funding by $1.4 billion statewide, resulting in an estimated "Gap" funding of percentage, or $4.7 million. Similar to revenue limits, LCFF Gap funding is partially offset by declining enrollment of an estimated 300 students, or roughly $2.0 million. i. Property tax revenues have been increasing in recent years due to the shift of community redevelopment property tax funds from cities to districts. Revenues are estimated $26.35 million, or percent of total budgeted revenues. ii. Education Protection Account funding was also established to collect and disburse the temporary taxes generated under Proposition 30, which was extended under Proposition 55. EPA revenues are estimated at $22.15 million; and similar to property taxes, any changes in EPA funding is offset by a change in LCFF. 2. Federal income is budgeted at $11.97 million, a decrease of $0.36 million from the previous reported budget. Funding losses for one-time carryover funds from various federal programs will be re-evaluated and adjusted in the next budget update. 3. Income from State funding sources is budgeted at $19.63 million, a decrease of $3.42 million or percent from the District's final budget amounts. The reduction was primarily due to the loss of one-time discretionary funds of $214/ADA provided by the state in Local revenues are projected to be $1.58 million, or $0.61 million lower than prior year estimates from the loss of the Southeast Academy interagency agreement, Cerritos College AMETLL grant, and one-time LAUP funds. 5. Other Financing Sources (transfers-in) include Board of Education approved transfers to support and fund specific identified activities, such as child-care and OPEB, and are budgeted at $0.82 million. 15

19 MANAGEMENT'S DISCUSSION AND ANALYSIS The District s total General Fund expenditures are budgeted at $ million. Unrestricted expenditures are budgeted at $ million and restricted expenditures are budgeted at $59.36 million. Salaries and benefits represent 84.6 percent of all expenditures and the remaining 15.4 percent is allocated to books, materials, supplies, capital equipment, other operating expenditures, and other uses. Expenditures are based on the following forecasts: 1. Salaries for certificated and classified personnel total $ million. Staffing ratios approved in policy and employee contracts are included in the proposed budget and reflect the salaries of 693 classroom teachers, 46 certificated site administrators, 35 counselors, 37 other certificated staff, 41 certificated and classified management staff, 8 confidential employees and 557 classified site and district staff. Provided below are teacher staffing ratios, while classified staffing is designed by school-site levels. Staffing Ratio Enrollment Projections Grades kindergarten through third 26:1 5,342 Grades four through five 31:1 2,672 Grades six through eight 30:1 4,149 Grades nine through twelve 28.8:1 5,095 Salary projections include the following: a. Negotiations for the were settled with both bargaining associations and the cost of the 3.00 percent cost-of-living increases are budgeted; however, negotiations remain unsettled. Certificated and classified budgeted salaries also include the increased or improved services to pupils reflected in the District's Local Control Accountability Plan (LCAP), and includes the addition of $2.7 million for certificated salaries $0.58 million for classified position to support English-language learners, low socio-economic students, and foster youth. b. Step, scale, and longevity increases estimated at $0.98 million, which has been adjusted for attrition. 2. Employee benefits are budgeted at $47.13 million, and include statutory benefits for all positions as follows: (STRS percent, PERS percent, OASDI 6.2 percent, Medicare 1.45 percent, SUI 0.05 percent, Workers' Comp 2.22 percent, Alternative Retirement 5.00 percent, and OPEB percent.). STRS and PERS rates reflect increases from previous years which were and percent, respectively. The State has warned that future increases are scheduled to be phased-in over the next seven years to eliminate the outstanding liabilities. These increased employer contributions for STRS and PERS are estimated to impact multi-year projections by over $4.16 million through a. The District also negotiated to increase the contribution for each active employee eligible for health and welfare benefits from $10,075 to $10,350, effective Plan Year 2016; and will also contribute an additional $1.0 million annually to mitigate future medical premium increases. The District also makes a contribution to cover retiree's pay-as-you go portion, which is estimated at $0.79 million. 16

20 MANAGEMENT'S DISCUSSION AND ANALYSIS 3. $33.4 million of the total General Fund operating budget is allocated for books, supplies ($9.80 million), other operating expenses and services ($17.16 million), capital outlay ($4.07 million), and other outgo and uses ($2.41 million). 4. Staff presented the LCAP and use of supplemental and concentration funds to meet the needs of the targeted students (also known as the proportionality percentage) as required by statute to the Board of Education, which was approved and included in the District Budget. Total funding required to meet the proportionality percentage requirement is budgeted at $29.38 million, resulting in a minimum proportionality percentage percent, an increase of 1.67 percent over the prior year. CONTACTING THE DISTRICT'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, students, and investors and creditors with a general overview of the District's finances and to show the District's accountability for the money it receives. If you have questions about this report or need any additional financial information, contact Estuardo Santillan, Assistant Superintendent, Business Services or Manuel Cardoso, Director of Business Services at Norwalk-La Mirada Unified School District, Pioneer Blvd, Norwalk, California, 90650, or at esantillan@nlmusd.org and mcardoso@nlmusd.org. 17

21 STATEMENT OF NET POSITION Governmental Business-Type Activities Activities Total ASSETS Deposits and investments $ 132,505,312 $ 417,770 $ 132,923,082 Receivables 7,992,501 7,298 7,999,799 Prepaid expenses 1,924,370 1,795 1,926,165 Stores inventories 356, ,439 Capital assets Land and construction in process 22,799,033-22,799,033 Other capital assets 388,268,682 12, ,281,477 Less: accumulated depreciation (119,550,360) (12,795) (119,563,155) Total Capital Assets 291,517, ,517,355 Total Assets 434,295, , ,722,840 DEFERRED OUTFLOWS OF RESOURCES Deferred charge on refunding 892, ,565 Deferred outflows of resources related to pensions 43,788, ,518 43,930,562 Total Deferred Outflows of Resources 44,680, ,518 44,823,127 LIABILITIES Accounts payable 18,213,601 15,396 18,228,997 Accrued interest payable 835, ,226 Unearned revenue 3,815,020 34,654 3,849,674 Long-term obligations: Current portion of long-term obligations other than pensions 17,853,407-17,853,407 Noncurrent portion of long-term obligations other than pensions 239,698, ,698,736 Total Long-Term Obligations 257,552, ,552,143 Aggregate net pension liability 205,042, , ,492,300 Total Liabilities 485,458, , ,958,340 DEFERRED INFLOWS OF RESOURCES Deferred inflows of resources related to pensions 8,320,453 22,112 8,342,565 NET POSITION Net investment in capital assets 156,293, ,293,584 Restricted for: Debt service 17,970,379-17,970,379 Capital projects 1,091,254-1,091,254 Educational programs 4,064,454-4,064,454 Other activities 17,218,471-17,218,471 Unrestricted (211,440,597) 47,517 (211,393,080) Total Net Position $ (14,802,455) $ 47,517 $ (14,754,938) The accompanying notes are an integral part of these financial statements. 18

22 STATEMENT OF ACTIVITIES FOR THE YEAR ENDED Program Revenues Charges for Operating Services and Grants and Functions/Programs Expenses Sales Contributions Governmental Activities: Instruction $ 141,141,697 $ (14,953) $ 28,673,884 Instruction-related activities: Supervision of instruction 16,683,186 44,623 5,365,540 Instructional library, media, and technology 1,983, ,845 School site administration 16,225,937 53,545 1,852,920 Pupil services: Home-to-school transportation 5,782,758 (2,604) 79,800 Food services 11,022,682 1,375,459 8,497,442 All other pupil services 13,320,214 (855) 2,735,112 Administration: Data processing 2,977, All other administration 9,520,833 67,976 1,233,314 Plant services 24,698,805 59, ,341 Ancillary services 1,088,947-25,985 Enterprise services 208, Interest on long-term obligations 9,669, Other outgo 3,494,258 (13,256) 386,655 Depreciation (unallocated) 1 8,492, Total Governmental Activities 266,310,649 1,569,310 50,002,838 Business-Type Activities Enterprise services 706, ,134 - Total School District $ 267,017,440 $ 2,526,444 $ 50,002,838 General revenues and subventions: Property taxes, levied for general purposes Property taxes, levied for debt service Taxes levied for other specific purposes Federal and State aid not restricted to specific purposes Interagency revenues Interest and investment earnings Miscellaneous Subtotal, General Revenues Transfers Change in Net Position Net Position - Beginning Net Position - Ending 1 This amount excludes any depreciation that is included in the direct expenses of the various programs. The accompanying notes are an integral part of these financial statements. 19

23 Net (Expenses) Revenues and Changes in Net Position Governmental Business-Type Activities Activities Total $ (112,482,766) $ - $ (112,482,766) (11,273,023) - (11,273,023) (1,815,407) - (1,815,407) (14,319,472) - (14,319,472) (5,705,562) - (5,705,562) (1,149,781) - (1,149,781) (10,585,957) - (10,585,957) (2,977,395) - (2,977,395) (8,219,543) - (8,219,543) (23,655,089) - (23,655,089) (1,062,962) - (1,062,962) (208,955) - (208,955) (9,669,259) - (9,669,259) (3,120,859) - (3,120,859) (8,492,471) - (8,492,471) (214,738,501) - (214,738,501) - 250, ,343 (214,738,501) 250,343 (214,488,158) 30,401,820-30,401,820 16,055,476-16,055, , , ,466, ,466, , , , ,132 11,772,573 4,502 11,777, ,483,850 4, ,488,352 80,000 (80,000) - (7,174,651) 174,845 (6,999,806) (7,627,804) (127,328) (7,755,132) $ (14,802,455) $ 47,517 $ (14,754,938) 19

24 GOVERNMENTAL FUNDS BALANCE SHEET Special Reserve Fund for Bond Interest Non-Major Total General Capital Outlay and Redemption Governmental Governmental Fund Projects Fund Funds Funds ASSETS Deposits and investments $ 54,791,987 $ 11,440,858 $ 16,683,657 $ 19,191,043 $ 102,107,545 Receivables 5,143, ,089-2,504,632 7,777,634 Due from other funds 392, ,380 Prepaid expenditures 25, ,537 Stores inventories 159, , ,439 Total Assets $ 60,513,048 $ 11,569,947 $ 16,683,657 $ 21,892,883 $ 110,659,535 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ 10,147,239 $ 261,274 $ - $ 1,546,814 $ 11,955,327 Due to other funds , ,380 Unearned revenue 3,802, ,971 3,815,020 Total Liabilities 13,949, ,274-1,952,165 16,162,727 Fund Balances: Nonspendable 309, , ,976 Restricted 4,064,454 2,121,948 16,683,657 19,413,848 42,283,907 Committed , ,662 Assigned 6,184,237 9,186, ,370,962 Unassigned 36,005, ,005,301 Total Fund Balances 46,563,760 11,308,673 16,683,657 19,940,718 94,496,808 Total Liabilities and Fund Balances $ 60,513,048 $ 11,569,947 $ 16,683,657 $ 21,892,883 $ 110,659,535 The accompanying notes are an integral part of these financial statements. 20

25 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION Total Fund Balance - Governmental Funds $ 94,496,808 Amounts Reported for Governmental Activities in the Statement of Net Position are Different Because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported as assets in governmental funds. The cost of capital assets is: $ 411,067,715 Accumulated depreciation is: (119,550,360) Net Capital Assets 291,517,355 This is the deferred amount on refunding as a result of refunding of bonds. The difference between the amounts that were sent to the escrow agent for the repayment of the old debt and the actual remaining debt obligation will be amortized as an adjustment to interest expense over the remaining life of the refunded debt. This balance represents the unamortized remaining balance as of year-end. 892,565 In governmental funds, unmatured interest on long-term obligations is recognized in the period when it is due. On the government-wide statements, unmatured interest on long-term obligations is recognized when it is incurred. (835,226) An Internal Service Fund is used by the District's management to charge the costs of the workers' compensation insurance program to the individual funds. The assets and liabilities of the Internal Service Fund are included with governmental activities. 8,642,796 Deferred outflows of resources related to pensions represent a consumption of net position in a future period and is not reported in the District's funds. Deferred outflows of resources related to pensions at year-end consist of: Pension contributions subsequent to measurement date 17,949,128 Net change in proportionate share of net pension liability 2,663,506 Difference between projected and actual earnings on pension plan investments 20,684,005 Differences between expected and actual experience in the measurement of the total pension liability 2,491,405 Total Deferred Outflows of Resources Related to Pensions 43,788,044 Deferred inflows of resources related to pensions represent an acquisition of net position that applies to a future period and is not reported in the District's funds. Deferred inflows of resources related to pensions at year-end consist of: Net change in proportionate share of net pension liability (2,991,376) Differences between expected and actual experience in the measurement of the total pension liability (3,588,724) Changes in assumptions (1,740,353) Total Deferred Inflows of Resources Related to Pensions (8,320,453) The accompanying notes are an integral part of these financial statements. 21

26 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION, (Continued) Net pension liability is not due and payable in the current period, and is not reported as a liability in the funds. $ (205,042,598) Long-term obligations, including bonds payable, are not due and payable in the current period and, therefore, are not reported as liabilities in the funds. Long-term obligations at year-end consist of: General obligation bonds $ (138,448,236) Unamortized premium on bond issuance (4,474,194) 2005 Certificates of Participation (QZAB program) (2,770,165) Capital leases payable (170,660) Other postemployment benefits (OPEB) (29,252,513) Compensated absences (vacations) (2,669,413) In addition, the District has issued "capital appreciation" General Obligation Bonds. The accretion of interest on the General Obligation Bonds to date is: (62,156,565) Total Long-Term Obligations (239,941,746) Total Net Position - Governmental Activities $ (14,802,455) The accompanying notes are an integral part of these financial statements. 22